Category Archives: Spend Analysis

Is it the case that Spend Matters Most?

As per my Noteworthy last week, Iasta (acquired by Selectica, merged with b-Pack, renamed Determine, acquired by Corcentric) is about to release it’s new Spend Analysis platform SmartAnalytics, Emptoris (acquired by IBM, sunset in 2017) building on it’s acquisitions of Zeborg and diCarta, just released the new version of its enterprise suite with its new and improved Spend Analysis Solution, and earlier this year Procuri (acquired by Ariba, acquired by SAP) consumed TrueSource to offer TotalAnalytics – and Zycus is gaining ground everyday. It looks like the time has finally come for the big spend analysis vendors. And none too soon. After all, how can you identify your ripest targets for strategic sourcing without understanding your spend? And as Jason points out over on Spend Matters, spend visibility and analytics applications can become an invaluable solution for tactical everyday procurement activities as well as areas that are truly strategic on the board level. It’s definitely a growth area for the eSourcing vendors – especially the on-demand ones.

But is it ready for prime-time? Not only are some of these offerings new and relatively unproven in the field, but they also require a level of sophistication well beyond your simple RFXs and reverse auctions that are still the mainstay of many eSourcing users. And I know there are still many individuals that believe a centralized ERP will give you the spend visibility you need to do proper spend analysis – which is not the case, and you should check out Tim’s response in the comments to Jason’s post for a real world example as to why.

In most cases, I know the solutions are there. Zycus is one of the only remaining pure players and has a very attractive offering based on its success stories alone. Zycus has amassed numerous wins over its seven year history and Procuri has successfully integrated TotalAnalytics to amass some success stories of their own. As noted in Spend Matters, Consider the case of a pharmaceutical company — who will go unnamed — which has used TotalAnalytics to help quantify and accelerate procurement cost savings synergies in three multi-billion dollar acquisitions. This company has used the solution’s capabilities to define and track over 60 category management programs, enabling them to leverage spend and rationalize suppliers across acquired and existing divisions. This leaves us with Emptoris and Iasta.

Iasta’s solution makes the cut since they based it on one of the most powerful on-demand spend analysis engines available, integrated it into their platform, and extended the out of the box reporting capabilities available. I’ll have more to say after the formal release, which is forthcoming in the very near future.

Emptoris has also had some big wins, and has had their eSourcing suite with their initial spend analysis solution ranked #1 by Forrester in Q4 of 2005. So they are definitely a real player, but I’m a little concerned if their new solution is ready for prime time from a usability perspective. It is probably the most aggressive spend analysis offering on the marketplace today, with a new Spend Data Classifier, a new Real Time Spend Classifier, new import / export facilities, and a slew of add-ons for government watch list, credit score, and diversity rating integration, among other features. Now I know that Emptoris knows their stuff, it’s a challenge to find a question on an Emptoris product or capability that Kevin (Potts) cannot answer and Avner (Schneur) is absolutely correct when he says that with accurate and granular spend visibility, companies can gain greater control over and impact on their bottom line through improved sourcing and supply and contract management – and they have already delivered significant results. But when your average eSourcing user is still daunted by basic spend classification and decision optimization (just look at the recent Purchasing Survey), I wonder if they are going to be able to digest Emptoris’ new offering, especially considering Emptoris is still a traditional installed behind-the-firewall application where you only get maximum value from maximum deployment? I know it looks great in a power point presentation, but it can be hard to hide that much underlying complexity. If you’ve seen it in action, used it, or have your own take, please feel free to leave a comment.

Aberdeen’s Global Supply Chain Benchmark Report

Aberdeen Group’s “Global Supply Chain Benchmark Report: Industry Priorities for Visibility, B2B Collaboration, Trade Compliance, and Risk Management” report, released in June, contains an alarming statistic, especially in today’s information technology driven networked world. An astounding 90% of all enterprises report that their global supply chain technology is inadequate to provide the corporate finance organization with the timely information it requires for budget and cash flow planning and management.

Furthermore, 79% of large companies say that the lack of supply chain process visibility is their top concern. Considering that, as we pointed out in yesterday’s post, understanding your supply chain is key to success, this is a serious concern. After all, if you have no visibility into your supply chain, how can you map it out and understand the real impact of any decision you might make with respect to your supply chain?

Fortunately, this excellent report also contains some solid recommendations for action to get you started.

  • Extend supply chain visibility.
    Move to exception-based management of global supply chain activities and slowly increase the number of milestones you monitor. Start executing against a longer-term roadmap that adds escalation policies, inventory pipeline visibility, mobile asset management, root cause analysis, and financial settlement and financing integration.
  • Scale business-to-business collaboration.
    The most productive collaboration processes are collaborative forecasting, inventory management, and replenishment, so focus on scaling those first.
  • Go corporate-wide with trade compliance.
    Move toward a single corporate-wide trade compliance platform and comprehensive origin and trade agreement management. Smaller companies should look to on-line tools for restricted party screenings and total landed cost calculations.
  • Institutionalize risk management.
    Make risk assessment and contingency planning part of your standard operating procedure. Institute supplier remediation programs for high-risk providers and increase logistics and supply agility to improve recovery capabilities.

Of course, before you can improve collaboration, and identify key milestones, you need to know where to begin. This is where next generation spend analysis systems that provide true visibility into your spend and the inter and intra organization and product relationships, often referred to as spend intelligence systems, and described in Aberdeen Group’s “The Spend Intelligence Benchmark Report: Turning Data into Action” that also came out in June, play a significant role.

This report also had some solid recommendations to get you started on the road to improved visibility.

  • Securing Executive Sponsorship.
    This is critical for just about any major undertaking, especially one involving an extensive information technology investment. If you don’t have a project champion who can make the case to senior executives, find the one who can offer the most clout.
  • Building a cross-functional team for enterprise-wide spend intelligence.
    Have an intelligence-gathering plan and key stakeholders in place to draw up the goals and expectations of a spend intelligence program.
  • Demonstrating quick hits by assessing spend intelligence opportunities in one or two spend categories.
    Showing the results of a small pilot program can help make the case with senior executives.

Support has to come top down, everyone needs to be involved, and you have to start small and work your way up. But the effort is worth it. After all, the report found that best in class companies reduced sourcing cycles by 19 to 25% while increasing contract compliance rates by 31 to 35%.

There’s No Such Thing as Spend Intelligence

For the last six weeks, I have been exploring problem solving methodologies you could use to help you with your sourcing problems. At a later date, I’m most likely going to take up six sigma and lean, but today I’m going to rant.

There’s no such thing as a Spend Intelligence Solution!

And before you start huffing and puffing about how wrong I am, please read this post in its entirety. Thank you.

A few weeks ago, Aberdeen released its study “The Spend Intelligence Benchmark Report: Turning Data into Action”. This study by Sudy Bharadwaj, Aberdeen’s new Vice President and Research Director of Global Supply Management, and Rick Saia, an Aberdeen Research Analyst, found that companies employing spend intelligence have reduced sourcing cycles by 19 to 25%, reduced the overall number of items they need to purchase by 10 to 15%, and reported contract compliance rates of 31 to 35%, depending on how long the program has been in place. These are some significant results, so there must be something to it.

Shortly after its release, this report sparked a considerable amount of coverage on the blogs. Jason Busch of Spend Matters challenged* the thinking behind Aberdeen’s use of the phrase spend intelligence. The main points of his post were as follows:

Consider how in a recent study, Aberdeen adopted the term “spend intelligence” to describe the broader spend visibility and analytics market. The purpose of my post today is not to rip into the findings — the study itself is highly useful — but to challenge the thinking behind Aberdeen’s use and definition of the phrase, “spend intelligence,” which at this point feels dangerous to me, just as overly political language feels dangerous to Orwell. Why? As an attempt to shoot some Botox into a segment of the Spend Management market that can be challenging to explain and position, Aberdeen’s choice of language shortchanges and over simplifies a concept, potentially corrupting how the market will look at a key Spend Management business process. …

The problem is that spend visibility and analytics is much more complex, requiring data cleansing, rationalization, classification and other efforts which go far beyond what is needed to gain insight into basic HR, financials, IT and other internal information, which fall cleanly in to the BI camp. …

Fundamentally, “spend intelligence” should exist both inside and outside the organization, but Aberdeen’s usage might lead companies to think that everything they need lies within. The problem with this thinking is that supply market information changes all the time …

… by focusing too much on the final insight itself, “spend intelligence” conjures up images of the end-result, rather than the journey or path to get there (which can be as insightful as the data crunching itself). For example, in data gathering efforts, procurement can learn just as much about spend categories by talking with design engineers and operations team members as reading the SAP tea-leaves where dirty data resides.

Not long after, Tim Minahan, who used to occupy Sudy’s position at Aberdeen, of Procuri (acquired by Ariba, acquired by SAP)came to the defense of Aberdeen’s Spend Intelligence Moniker on his blog Supply Excellence [WayBackMachine]. The main posts of his post were as follows:

As an analyst, every software vendor — … — touted their spending analysis capabilities. The caveat: you just needed to give them the data in a cleansed, classified, and structured format. … In short, most vendors pitched building a data cube or data warehouse from which you could run analyses and reports as spending analysis. They were wrong. And they confused the marketplace (possibly intentionally).

It is the automated and repeatable classification of spending information to a structured schema (e.g., UNSPSC, eClass, proprietary schema, etc.) and then the enrichment of this data with related business information (e.g., parent-child relationships, financial risk scores, contracts, performance information) that turns spend information from “dumb” data into true spend intelligence that a company can use to make fact-based sourcing and supply decisions rather than gut-based or hunch-based decisions.

The distinction between spend data and spend intelligence is an important one. Bravo Aberdeen for calling out the difference between dumb data and actionable intelligence.

And just a few days ago, Purchasing Magazine sponsored a webinar on the report where Sudy presented the main findings of the report and Brett Mauser of NCR, a corporation that recently implemented Zycus‘ spend management solution, discussed how spend intelligence has kicked NCR’s spend management program into overdrive. (Note that Zycus was one of the sponsors of the Spend Intelligence Benchmark Report.)

According to the study, and reinforced in the webinar, companies with best-in-class spend intelligence solutions have a process maturity that is twice that of their counterparts, and those processes are almost twice as likely to be aligned company wide. In addition, those processes are twice as likely to be automated. And mature, automated, processes get results. So why am I insisting that there is no such thing as a spend intelligence solution, when it appears that these solutions not only exist, but get great results?

Let’s start with the definition of intelligence.

Intelligence is a most complex practical property of mind, integrating numerous mental abilities, such as the capacities to reason, plan, solve problems, think abstractly, comprehend ideas and language, and learn.

And since spend management solutions are software, let’s review a definition for software.

Software is the (collection of) program(s) that enable a computer to perform a specific task, as opposed to the physical components of the system (hardware), where a program is the collection of source code and libraries which have been compiled into an executable or otherwise interpreted to “run” in (active) computer memory, where it can perform both automatic and interactive tasks with data.

Simply put, intelligence is a property of mind and software is a property of machine. And despite the efforts of the artificial intelligence community, I do not expect the property to cross the chasm anytime soon. Artificial intelligence is simply a collection of very sophisticated algorithms processing large data stores, instruction sets, and probabilities very quickly to come up with reasonable responses to queries – it is not thought, although it might appear to be thought since today’s computers can perform billions of calculations in a second. And that’s where my beef with the term spend intelligence lies.

Furthermore, as Jason Busch of Spend Matters points out, the term is very misleading and overlooks the fact that results from enhanced spend visibility and analytic efforts require data cleansing, rationalization, classification and other efforts which go far beyond what is needed to gain insight into basic HR, financials, IT and other internal information, which fall cleanly in to the BI camp.

So if you want to call it spend visibility, actionable spend, or maybe even spend knowledge, I’m all for it. But since the real intelligence lies in the user of the tool who takes the actionable data and uses it to get results, there is no spend intelligence software, only spend intelligence enablement software. And when you get right down to it, that’s what you really need as an expert power procurement user – software that helps you make the right decisions, not software that purports to make those decisions for you.

However, regardless of what you call it, check out the “The Spend Intelligence Benchmark Report: Turning Data into Action” while you have the chance. Just like the “On Demand Supply Management” report, it is top notch research, whatever you want to call it.  After all, as Tim Minahan pointed out, the distinction between spend data and spend intelligence is an important one, and the Aberdeen report is one of the first reports to call it out, even if I may take issue with the impreciseness of the terminology used.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Strategic Sourcing and Spend Analysis

Since this blog is about sourcing innovation, we are going to start off by defining a basic strategic sourcing process that could proceed as follows:

( 1) Spend Analysis
( 2) Spend Strategy
( 3) Data Collection
( 4) RFI
( 5) Supplier Qualification
( 6) RFP/RFQ
( 7) Auction and/or Negotiation
( 8) Decision Optimization
( 9) Award and Contract
(10) Contract Management
(11) Compliance Management
(12) Spend Management

A careful analysis of this process will produce five critical process-driven phases that can be greatly enhanced by software solutions:

(12&1) Spend Management and Spend Analysis
(4&6)  RFX
(7)    Auction
(8)    Decision Optimization
(10)   Compliance Management

It’s true that supplier management and compliance management can also be greatly enhanced by software, but good RFX and Auction tools will build in basic supplier management capabilities and good spend management and contract management tools will build in basic compliance management tools and these five solutions together will effectively cover a basic strategic sourcing cycle.

Each day this week we are going to focus on one of these processes, starting with Spend Analysis and Spend Management today.

Spend Analysis is the process of aggregating, classifying, and leveraging spend data for the purpose of cost reduction, performance improvement, and greater compliance.  It is part of the spend management process, which includes the analysis, award, and tracking of corporate spend, and the first and last step of your strategic sourcing process.

Successful spend analysis relies on three critical factors: access, resources, and powerful analytics.  First of all, you need access to all of the relevant data – this is where good spend management practices that ensure all of your purchases get classified and entered into your core ERP or financial systems comes into play.  Then you need the resources, which includes financial capital as well as human capital, to do it.  Finally, you need a sophisticated solution that can slice and dice the data by supplier, commodity, period, contract, geographic location, or any other meaningful combination thereof.  It should also have the ability to detect spending patterns and variations.

This is where technology comes into play.  Good solutions, like the solution provided by BIQ (acquired by Opera Solutions in 2012, which renamed itself Electrifai), can slice, dice, and drill down on multiple dimensions simultaneously, support custom defined filters, interface with Excel, and process data sets of over 100 million transactions.

Spend analysis is important as it is the first step in the identification of possible savings opportunities.  Likewise, spend management is important because it is the only way to insure you capture the savings you negotiate and one of the best ways to insure compliance with relevant regulations.

Furthermore, innovative spend analysis built on advanced analytics and business intelligence can identify savings opportunities you would most likely miss.  Biq’s offering is one of the most innovative I’ve seen.  Most solutions need to be tightly integrated into your existing systems to work.  Biq’s solution can slurp your data in over the internet, slice it and dice it, and spit back meaningful aggregated summaries in any view you desire.

For more information on spend analysis / spend management solutions and the benefits they can bring to your business, I recommend starting with Aberdeen Group which has been producing great research for a number of years on this subject.  For example, you could start with the executive white paper “Spend Data Management: Unlocking the Value Across the Extended Enterprise” in October 2003, “Best Practices in Spending Analysis: Cure for a Corporate Epidemic” in September 2004, “Spend Compliance Management: Implementing and Sustaining Supply Savings” in December 2004, and Spend Intelligence: the Next Generation of Spend Analysis” in May, 2006.

As always, comments, criticisms, and creative insights can always be emailed directly to us using the contact information in the FAQ.